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Beyond the DSGE straightjacket

  • Pesaran, M. H.
  • Smith, R. P.

Academic macroeconomics and the research department of central banks have come to be dominated by Dynamic, Stochastic, General Equilibrium (DSGE) models based on micro-foundations of optimising representative agents with rational expectations. We argue that the dominance of this particular sort of DSGE and the resistance of some in the profession to alternatives has become a straitjacket that restricts empirical and theoretical experimentation and inhibits innovation and that the profession should embrace a more flexible approach to macroeconometric modelling. We describe one possible approach.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1138.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1138.

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Date of creation: 13 Apr 2011
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Handle: RePEc:cam:camdae:1138
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
  2. Pesaran, M.H. & Chudik, A., 2010. "Econometric Analysis of High Dimensional VARs Featuring a Dominant Unit," Cambridge Working Papers in Economics 1024, Faculty of Economics, University of Cambridge.
  3. Pesaran, M. Hashem & Chudik, Alexander, 2011. "Aggregation in Large Dynamic Panels," IZA Discussion Papers 5478, Institute for the Study of Labor (IZA).
  4. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2008. "How Structural Are Structural Parameters?," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 83-137 National Bureau of Economic Research, Inc.
  5. Frank Schorfheide, 2011. "Estimation and evaluation of DSGE models: progress and challenges," Working Papers 11-7, Federal Reserve Bank of Philadelphia.
  6. Koop, Gary & Pesaran, M. Hashem & Smith, Ron P., 2011. "On Identification of Bayesian DSGE Models," IZA Discussion Papers 5638, Institute for the Study of Labor (IZA).
  7. Pesaran, M. H., 1981. "Identification of rational expectations models," Journal of Econometrics, Elsevier, vol. 16(3), pages 375-398, August.
  8. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2004. "Exploring the International Linkages of the Euro Area: A Global VAR Analysis," IEPR Working Papers 04.6, Institute of Economic Policy Research (IEPR).
  9. Timothy Cogley & Riccardo Colacito & Lars Peter Hansen & Thomas J. Sargent, 2008. "Robustness and U.S. Monetary Policy Experimentation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1599-1623, December.
  10. Sargent, Thomas J, 1976. "The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 631-40, June.
  11. Pesaran, M. H. & Smith, R. P., 1985. "Evaluation of macroeconometric models," Economic Modelling, Elsevier, vol. 2(2), pages 125-134, April.
  12. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2008. "Identification of New Keynesian Phillips Curves from a Global Perspective," CESifo Working Paper Series 2219, CESifo Group Munich.
  13. Canova, Fabio & Sala, Luca, 2006. "Back to square one: identification issues in DSGE models," Working Paper Series 0583, European Central Bank.
  14. Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2006. "Learning, Structural Instability and Present Value Calculations," IEPR Working Papers 06.42, Institute of Economic Policy Research (IEPR).
  15. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  16. Yongsung Chang & Sun-Bin Kim & Frank Schorfheide, 2010. "Labor-Market Heterogeneity, Aggregation, and the Lucas Critique," RCER Working Papers 556, University of Rochester - Center for Economic Research (RCER).
  17. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  18. Laibson, David I. & Fuster, Andreas & Mendel, Brock, 2010. "Natural Expectations and Macroeconomic Fluctuations," Scholarly Articles 9938147, Harvard University Department of Economics.
  19. Charles F. Manski, 2011. "Policy analysis with incredible certitude," CeMMAP working papers CWP04/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  20. Ellen R. McGrattan & Patrick J. Kehoe & V. V. Chari, 2008. "New Keynesian models: not yet useful for policy analysis," Working Papers 664, Federal Reserve Bank of Minneapolis.
  21. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  22. Cogley Timothy & Yagihashi Takeshi, 2010. "Are DSGE Approximating Models Invariant to Shifts in Policy?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-33, October.
  23. Stephane Dees & M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2010. "Supply, Demand and Monetary Policy Shocks in a Multi-Country New Keynesian Model," CESifo Working Paper Series 3081, CESifo Group Munich.
  24. Pesaran, M. Hashem & Smith, Ron, 1995. "The role of theory in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 61-79, May.
  25. Wallis, Kenneth F, 1980. "Econometric Implications of the Rational Expectations Hypothesis," Econometrica, Econometric Society, vol. 48(1), pages 49-73, January.
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